Wool brings in over $3 billion

Wool brings in over $3 billion


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The Australian wool industry has reached a $3 billion season turnover, its highest ever.

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The Australian wool industry is continuing its record-breaking streak, hitting a season turnover of $3 billion, the highest ever since records began.

PRICE HEIGHTS: Australian Council of Wool Exporters and Processors president Matt Hand said in his 25 years in the wool industry, he had never seen so much strength in the industry. Photo by Laura Ferguson.

PRICE HEIGHTS: Australian Council of Wool Exporters and Processors president Matt Hand said in his 25 years in the wool industry, he had never seen so much strength in the industry. Photo by Laura Ferguson.

While the season still has six weeks of selling ahead, the total turnover has already surpassed last season’s $2.7 billion total. 

The impressive run – which has resulted in the Eastern Market Indicator (EMI) reaching new daily records 18 times this season – has industry experts forecasting a total turnover of up to $3.4 billion this season. 

As the EMI closes-in on 1900 cents a kilogram, questions are being raised about when the market will hit its peak. 

Following another big week of sales, the EMI reached uncharted territory again last week, closing at 1891c/kg, up 55c/kg on the week prior. 

In his 25 years in the wool industry, Australian Council of Wool Exporters and Processors president Matt Hand said he had never seen such strength in the industry.

“The market is definitely very robust at the moment – the appetite for wool is really, really healthy,” Mr Hand said.

“Our supply seems to be suitable. We’re not growing too much, so prices are being driven by demand.”

Determining whether these prices were sustainable would depend on consumers’ response, he said.

“At a production level, people are hoping these prices are sustainable but at a retail level, perhaps some brands would like to see some price relief,” he said.

“It all depends on retail, the prices will be sustainable so long as consumers can afford the products at the end of the chain.”

He said if the products become unaffordable, there may be price resistance at some point, which could lead to a softening in the market.

“Of course there have been some raised eyebrows, but the overall reaction so far hasn’t been too negative,” he said.

National Council of Wool Selling Brokers of Australia executive director Chris Wilcox has been in China visiting a number of mills through Jiangsu and Zhejiang provinces, gauging reactions to the current wool levels.

“The mills all seem to be coping well with the sustained high prices and continued increases,” Mr Wilcox said.

“In part this is because the duration of the increase has been so extended, and it has meant that mills and their customers have been able to manage the increase, rather than dealing with erratic swings up and down which create uncertainty.”

He said it had meant some mills’ margins were being squeezed because some brands had not altered price points at a retail level.

“One example is the Japanese brand Uniqlo, which has had Merino sweaters at the same price for the past three autumn/winter seasons – and will probably have the same price point in the 2018 season,” he said.

“With retail price points remaining steady but higher retail material prices, margins of both Uniqlo and their suppliers are tighter.”

He said in some cases there had been substitution out of wool to other fibres.

“One feature among the mills is the growing importance of yarn for the circular knit sector, which produces next-to-skin garments for the active, leisurewear market,” he said.

“This is growing rapidly and is likely to overtake flatbed knitting yarn in the next few years.”

Fox & Lillie marketing manager Eamon Timms said the wool industry was currently in its “truest supply and demand situation”.

“There was a good 20-year hangover after the reserve price scheme collapse, and it’s only really been in recent times that we’ve seen no stockpile,” Mr Timms said.

“That has produced the highest demand for wool in the last 50 years.”

He said he’s seen previous times when the market’s gone “gangbuster”, but on those occasions, the price heights never lasted.

“I think we’ve got a much greater chance that there’s going to be a better long-term outcome from this rise when the market inevitably comes off the highs,” he said.

“It won’t do what it did back in the ‘90s, which was collapse.”

He said as supply tightened across the world, there was potential for further price rises prior to the winter recess.

“We’re at the time of the year where supply in South Africa becomes very limited and will shut off in a few week’s time,” he said.

“For anyone wanting to buy Merino wool, they’ve got to come to the Australian market.

“Demand signals from China are still fairly consistent and strong, which is working in our favour in terms of prices.”

He said the selection of available wool was also impacting the market.

“Some seasonable factors are really impacting the current selection, with more low-yielding wool coming through,” he said.

“So if you’re trying to buy long, sound, high-yielding wool, you’re going to struggle to get a high volume, hence why there’s a real scramble for it at the moment.”

Mr Timms said the lower volumes on offer nationally would be helping exporters’ financing.

“They’re not going to be as stretched when there are less than 40,000 bales being offered,” he said.

So is a peak on the cards soon, or will the market continue its growth?

Australian Wool Exchange senior market analyst Lionel Plunkett said there was a chance the EMI would reach 1900c/kg.

“The thing with a rising market is it is hard to know where it’s going to go but from a technical point of view, it’s looking quite positive,” Mr Plunkett said.

“We had a bit of a pause at the previous level, at 1850c/kg and lower, but then it just kept going.”

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